Coming soon to an MMORPG near you: taxes

When should virtual earnings be taxed? An upcoming congressional report seeks …

Governments may start paying more attention to MMORPGs for one simple reason: money. The boom in virtual economies has one congressional committee looking at whether there is an opportunity for the IRS to get involved, making sure Uncle Sam gets a cut of whatever real-world money is generated from online gaming activities.

Dan Miller, senior economist for the congressional Joint Economic Committee became interested in the issue after getting into MMORPGs in his free time. His personal gaming activities will form part of the basis for a report on the issue that will submitted to the full committee early next year.

"We are starting with a blank slate and going through the various dimensions of virtual economies, and seeing where they might intersect with public policy," Miller told Reuters. "Right now we're at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise—taxes, barter exchanges, property and wealth."

Of particular interest are games such as Second Life, which has its own, thriving in-game economy. Linden Dollars, the official currency of the game, are easily convertible to real dollars. As a result, online activities can ultimately be monetized, enabling users to cash in on their virtual activities. And if a Second Lifer can make money off of playing the game, chances are good that the IRS will want a piece of the action.

One game designer thinks that taxation is inevitable. Sam Lewis, who was on the team that designed Star Wars Galaxies, says that the real world has yet to catch up to virtual economies. "Ownership, property rights, all that stuff needs to be decided. There's just too much money floating around," Lewis told Reuters. "The tax laws don't know how to behave because these are virtual items: ones and zeros on a database we're allowing you to play in."

When the ones and zeros turn into sufficient quantities of tens and twenties, color the IRS interested. Current US tax law requires people who leave a game and convert their virtual holdings into real-world money to report any earnings to the IRS, and the same is true in many other countries. Once Congress and the IRS gain a better understanding about how virtual economies work, the tax code will likely change to reflect that.